Russia and Saudi Arabia could face economic and political consequences if the oil-production deal isn't extended

The
world's major oil producing countries - including some non-OPEC
states - struck a deal in November to cut production with the
hope of ending the global glut that has kept prices depressed for
over two years.
That six-month deal is about to expire and investors are trying
to parse whether it'll be extended amid perennial
geopolitical tensions and overlapping strategic
market interests.

Neither of the major players, Russia and Saudi Arabia, has
committed to an extension yet. However, given that the
economic and political stresses they face at home - that
could be exacerbated by another dip in oil prices - they're
likely to go along with it, says Helima Croft, Head of
Commodity Strategy at RBC Capital Markets.

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Both countries have seen weaker economic growth recently. The
Russian economy has been in contraction mode for two years, while
the IMF now projects the Saudi economy will grow by 0.4% in 2017,
down from 1.4% last year.

For Russia specifically, a drop in oil prices could also prove to
be politically costly, suggesting it is likely keen to
see the cuts extended, according to Croft.

"The leadership will likely be motivated to keep citizens
quiescent ahead of the March 2018 national elections and to
cement the modest economic relief provided by higher oil prices,"
she said in a note.

"While President Putin is expected to be re-elected, the Kremlin
was reportedly shaken by last month's anticorruption protests in
Moscow led by Alexei Navalny, which represented largest
anti-government demonstrations in five years."

As for the Saudis, they continued to face economic headwinds,
including the expensive campaign in Yemen. Croft added:

"[L]ast week the Kingdom tapped international debt markets for
the second time in six months, with a $9 billion Islamic bond
sale. The debt issuance should alleviate pressure on the
country's foreign exchange reserves, but high levels of military
spending (i.e. Yemen) will help keep Saudi Arabia in the red this
year. In addition, with the planned 2018 IPO of Saudi Aramco a
top priority for the leadership and the centerpiece of their
diversification drive, there appears to be little appetite for
price reversal."

Saudi Arabia's oil minister Khalid al-Falih
suggested at an oil conference on Thursday that production
cuts may need to continue.

WTI crude oil, the US benchmark, is down by 1.5% at $49.96 per
barrel, while Brent crude oil, the international benchmark, is
down by 1.2% at $52.34 per barrel as of 11:02 a.m. ET.